Can Bajaj Housing Finance create wealth like Bajaj Finance | Bajaj Housing Fundamental Analysis #Finance

hey everyone we have one of the biggest IP of the season from none other than the baj group they have come up with a new IP of baj Housing Finance after 30 years of their last listing

of baj Finance that was listed in 1994 and baj group has a long history of wealth creation for its investors especially that baj

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance has been one of the biggest wealth Creator in the history of Indian Stock Market on Google charts it shows baj text-decoration: none;">Finance bonus and split adjusted share price of 5.75 rupe in 2002 and today it is at levels of more than 7,000 rupe now that’s more than 1200 times return please note that it’s not percentage it’s 12,000 times return so baj

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance is not a 100 bagger it’s a thousand bagger company in the last 22 years what an extraordinary wealth creation obviously there’s a lot of excitement as baj group has come up

with a new IPO after almost three decades the question is can baj Housing Finance create wealth like baj text-decoration: none;">Finance well that’s not so easy during 199 4 baj Finance was a tiny company in fact during 2002 baj bold; color: #1a73e8; text-decoration: none;">Finance market cap was just around 350 CR so company had a long runway for growth because of its small Market size and immense growth potential in the consumer Landing space that was in a nent stage during that time the corporate sector was booming

with growth in ID sector and baj Finance laed up the opportunity to become a leader in consumer learning space today their new listing of baj housing finan is already at a

market cap of 58,000 CR and Housing Finance is already a highly competitive segment so 100 times return from current level is 58 lakh CR of market cap for baj Housing

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance which I don’t think is possible in the next 10 20 30 years having said this can baj none;">Finance become a consistent compounder with potential 10 times return return the next 105 years quite possible provided investment is done at right Valuations so in this CashNews.co we’ll Deep dive into baj Housing

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance business model key strength company’s growth plan financial ipu detail Valuation and key risk the idea behind this CashNews.co is to answer two key questions is it worth investing in baj housing

France IPO at current Valuation and more important question is if you don’t get the IPO allotment would it still be worth investing in the company post IPO because I don’t just discuss IPOs for quick gains that can be easily done on uh based on Gray Market premium I

like to discuss long-term wealth creation opportunities which is my main goal behind doing this CashNews.co by the way for quick gain also baj housing Finance is looking great with very high

gray Market premium but this CashNews.co is more useful for those who are looking for long-term investment opportunities and last thing before we start the idea behind my CashNews.co is to empower you all with the right knowledge so that you can make your own investment decision rather than buying

selling stocks based on tips all right let’s get started first of all baj Housing Finance is 100% subsidiary of Bajaj color: #1a73e8; text-decoration: none;">Finance as the name suggest it is in the business of Housing Finance it is India’s largest non- deposit taking Housing

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance company and second largest Housing Finance Company here non-deposit taking

nbfc means you can’t open a saving or current account with baj Housing Finance then how does baj Housing text-decoration: none;">Finance raise money we’ll discuss it shortly please note that baj housing is classified as a upper layer nbfc by RBI so RBI has categorization of nbfc in four segment base layer middle layer upper layer and top layer upper layer means company is systemically

significant nbfc please note that there are only 2530 companies in upper layer category and baj Housing Finance is one of them its product offering are divided into four segments your home

Loan Loan against property then re rental discounting and uh developer financing Al the primary focus is on individual retail housing Loan which is a lower risk and faster growing segment as of f24 home Loan contributed 57.8% of

their total am of which 87.5% is salaried customer 4.3% is self-employed professional customer and 8.2% is self-employed nonprofessional customer since salaried people have a very low default rate baj housing plans is a very low risk business on top of that a house Loan is a

secured Loan because in case of default the lender can seize the property and auction it to recover the payment not only that 75.5% of the home Loan AUM are from customer with civil score above 750 clearly High civil score suggest timely payment of Emi that that

adds another layer of safety the average Loan ticket size of the company is 46 lakh as of June 24 and their average Loan to value ratio is 69.3% companies a strong distribution network of 215 branches as of June 30 2024 spread across 174 location in 20 State and

three union territories now they use various direct and indirect sources for Loan origination for instance direct source include partnership with developers so when you buy a property from a developer they have partnership with baj Housing

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance and another Finance Company where you can Avail the Loan then they also leverage the digital

ecosystem in partnership with digital players along with d2c model of direct consumer acquisition then indirect sources include Channel partner individual agents third party agents and so on so that’s how B Housing #1a73e8; text-decoration: none;">Finance identifies Loan opportunities next question is how do they raise money to give Loan so there are multiple sources of borrowing first is Bank borrowing which is the largest segment with 47% contribution the then 38% comes

from NCD that is non-convertible debentures issued to public and remaining from National Housing Bank commercial papayal and so on please note that baj housing plance has the highest Credit rating of AAA for long-term and highest short-term rating of A1 Plus by Crystal now this is

one of the biggest reason why B Housing Finance is very promising company because of its strong parentage and Leadership company enjoys the highest Credit rating that helps

them raise fund at lowest possible rate as of today their cost of borrowing is 7.6% then another strength of the company is access to millions of people since it’s a subsidiary of baj none;">Finance it has access to all the customer of its parent I absolutely love the way baj Finance has built their business they started with targeting salaried people in the early

stage of the career by giving small consumer Loan like Loan for buying a phone washing machine TV and other appliances now during that time in early 2000 the cost of customer acquisition was very high for consumer lending because the Loan ticket

size for mobile or TV is very small hence major Banks did not focus on consumer lending that time and baj Finance tabed this opportunity initially it was a high cost for the

company but with that they got access to one of the fastest growing salary segment of India that they later leveraged for cross selling at zero acquisition cost so the lifetime value of their customer increased big time and today baj finan has access to millions of customer and their

Creditworthiness that actually helped it subsidary baj housing in its growth and would continue to help in the future that is one of the biggest reason why I found baj housing plance promising now this is the kind of insight you need before taking an investment decision but for

that you need to read a lot that’s where I try to add value by spending nearly 8 to 10 hours a day doing my research and identifying investment opportunities I also have a weekly CashNews.co series where I share One exclusive CashNews.co every week that also include my own investment details

along with reason behind my conviction but please note that it is a closed community of serious long-term investors for more detail you can visit my website or explore the joint button of this YouTube channel now let us look at the future growth potential so first of all the demand for housing

Loan is directly linked to economic growth and India is one of the fastest growing economies in the world so as the Indian economy would continue to grow people would become more prosperous and there would be continued demand for housing Loan simply because a house

is a dream of every person then there are various Trend within the economy like Rising urbanization where people are moving from small towns to cities for better job opportunities mind you more than 65% people in India still live in the rural part so that would again continue to create demand for

the housing sector for many years next very important driver is financial inclusion millions of people in India still don’t have access to Credit facility that’s where Indian government has highly focused on financial inclusion with various initiatives like jam Trinity

that is linkage of J than account mobile and Adar then formalization of economy with more and more white color jobs would continue to create demand for housing Loan please note that baj house housing has a stronghold in this category VI its parent baj

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance then another positive news is that aggressive rate high cycle in India are behind us so over the last couple of years RBI has increased the interest rate in India from 4% to 6.5% this

higher interest rate had a negative impact on nbfcs due to increase in borrowing cost and that would pressure on the Nim that is net interest margin however however now the rate hike cycle is behind us and is expected that RBI would soon start reducing the interest rate that would benefit the nbfcs

like baj Housing Finance in raising funding at lower interest rate so clearly there are strong Road drivers for Housing #1a73e8; text-decoration: none;">Finance sector of India if you look at the data point the overall nbfc retail Credit book is expected to grow at 14 to 16% kager uh between fi 24 to 27 and within that housing Loan have around 16% contribution overall Housing

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance Market is India is expected to grow at 13 to 15% now let us look at company’s financials so this slide gives a good picture of baj Housing

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance in last 3 years please note that this data is in million as of f24 Kam’s a stood at 91370 CR against last year a of 69227 CR and before that a of 5332 CR so am growth has been excellent in last 2 years at 30% kager

within that home Loan has highest contribution with average ticket size of 46 lakh company’s net interest Income has grown from 3,481 CR to 7,200 CR that’s almost 2x growth net total Income is also up nearly two times and

Profit after tax has grown from 79 CR to 1731 CR that’s nearly 2.5 times growth however please note that this growth is an exception because of sharp recovery in the Indian economy postco that resulted in huge surge in Real Estate sector in the recent past

coupled with attract interest rate and Improvement in asset quality however today the scenario is different Interest Rates are on higher side that is putting pressure on nbfcs net interest margin plus there’s not much scope for asset quality improvement so I don’t

expect such exponential growth in the future but still the overall growth potential is very good company has a good return on asset at 2.4 and return on Equity at 15.2% net NPA is topnotch at just 0.1% so fantastic asset quality so the past 2 years of IAL growth is exceptional but

past growth does not necessarily guarantee the same in the future hence you need to closely track the future financials now let us look at the key risk in the growth thesis so first key risk is regulation risk Housing text-decoration: none;">Finance is a regulated sector where government and RBI regulations can significantly impact the growth rate for instance increase in interest rate in the country directly impact the net interest margin of nbfcs that result in a fall in Profitability

after a certain point when they are not able to increase the Loan rates then second risk is increasing competition there are already a lot of player in housing FR segment from top private Banks like HDFC ICS EXs cotak to your top pus like SBI Bank of Boda then housing

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance companies like LC Housing Finance pnb Housing

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance Tata Capital housing then affordable housing Finance has

players like AAS housing home first Canin homes after value housing Adar housing plus there is lower spread in housing finan segment because home Loan rates are on Lower Side so it’s not that easy to maintain high Profitability in this segment then third key

risk is volatility in housing demand although the structural story of housing sector is looking promising there can be a phase where there’s slow down in housing demand due to temporarily pain in the economy or if there are challenges in the Real Estate market like fall in

property prices or fall in demand for Real Estate sector it can directly impact the growth of baj Housing Finance then fourth is asset quality risk as an nbfc the risk of

fall in asset quality will always exist in case of adverse regulatory changes or economic situation that can result in high default rate plus there can be a case where Loans are given to less Creditworthy people that fails to pay the Emi that would directly impact

the asset quality then company has major business from salaried people so in case of job lanss in Indian private sector it can result in increase in company’s NPA now let us look at the IPO detail and Valuation Part B house

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance IPOs between 9 to 11 September IPO size is 6,500 CR out of which 3560 CR is fresh issue and around 3,000 CR is offer for sale price band is between 66 to 70 rupee on the upper price band company would command a market cap

of 58240 CR so it would be a large cap company from day one of listing at Upper price band company would command a Price to Book of 3.72 based on its nav of 18.8 as of June 30 2024 company’s f24 earning is is 1731 CR and post IPO Shares are 832 CR that means company’s

EPS is 0 2.07 that means company would command a p ratio of 33 based on its f24 earning please note that we have ignored q1 f25 earning for now if you look at P of other listed players LC housing p is 8 pnb housing p is 16 a housing p is 25 AAS p is 28 and home first p is 32 at the moment so baj

Housing Finance P of 33 certainly on the high side of the band mainly because of its parentage of baj text-decoration: none;">Finance so in my opinion this issue is fully priced at the moment however for the long term it can create good wealth for the investor because of its leadership in housing plan sector that has a bright growth potential having said this this IPO is already commanding a

high gray Market premium of More than 70% in case it gets listed at such premium Valuation would Skyrocket in that case it would be better to wait for better Valuation there is no point buying the issue immediately post IPO at p of more than 50 that would be

Madness remember that even if you invest in great companies but if you invest at expensive Valuation then you can’t create wealth so in this CashNews.co we discuss the fundamentals of upcoming IPO on baj Housing color: #1a73e8; text-decoration: none;">Finance which is a leader in Indian Housing Finance sector with strong parentage of Bajaj bold; color: #1a73e8; text-decoration: none;">Finance considering the growth potential in the Indian economy Housing Finance sector is bound to do well and within that well-run institutes

like baj Housing Finance would continue to benefit from the trend company has a strong financial track record in the past with high Profitability and top-notch asset quality

however the issue is already fully priced at P of 33 having said this this IPO is worth considering for long-term wealth creation but in case you don’t get the IPO and the share price jumps on day one it would be prudent to wait for a better entry point now tell me in the comments what is

your take on baj Housing Finance if you find this CashNews.co useful do share it within your circle I’ll see you next CashNews.co till then take care